Starved for cash managers to go direct to consumers Friday 19 Feb 2016

Starved for cash managers to go direct to consumers

A raft of direct-to-consumer propositions are set to be launched by fund managers over the course of 2016, a fund administrator has predicted.

David Moffat, group executive at International Financial Data Services (IFDS), said until 2000, fund managers did a lot of direct to consumer marketing, but post the dot.com crash many fund managers have been “relatively content to take a back seat”, letting platforms do all the communicating and client servicing on their behalf.

Mr Moffatt said: “What seems to be driving a sudden sea change in thinking is a number of rating agencies and advisers being formed into bigger groups.”

Consistently, for nine of the last quarters, more than 80 per cent of fund flow has been to less than 50 funds in the UK, he pointed out, citing Fundscape statistics from a 2015 report covering data until the end of the third quarter.

This means there are 3,800 funds available for sale, “so by definition, 3,750 of them are surviving on scraps at the back” he said.

“Those with one of those favoured 50 funds will be fine,” according to Mr Moffatt, before suggesting the problem is many are becoming increasingly anxious that concentration risk means “if you win, you win big, but otherwise you starve”.

He said fund managers are starting to ask themselves how they can gain back a degree of control and communicate with the market directly in their own name.

While an adviser selling the product is responsible for assessing suitability, the IFDS boss said regulation is shifting so the fund manager is responsible holistically.

“Fund managers are becoming increasingly concerned, because they have lost contact at a certain level with their underlying consumer base and they have found the regulatory regime is simply demanding they be more in contact with that client base than they were previously.”

Philip Goffin, director of product innovation at IFDS, said fund managers will be adopting strategies which are both defensive and aimed at the acquisition of new business.

“Alongside designing a nice technical solution and a great user interface, they will spend significant amounts of marketing in trying to acquire new customers, not just servicing the old.

“If you’ve got this capability and spend this money on technology then why wouldn’t you try and acquire customers?

“The whole asset management industry has done an absolutely atrocious job historically of attracting millennial customers.”

Lang Cat founder Mark Polson said over the course of 2016 there will be a reawakened appetite for fund managers to deal directly with investors, partly due to technology barriers coming down, making this much more accessible as a proposition for managers.

He said: “Fund managers have viewed platforms as a distribution mechanism, but as they have evolved it is harder for managers to do that.

“To some extent they outsourced caring about customers a long time ago. Undeniably we will see fund managers getting back into the game, but it is not just having £15,000 in an Isa and a nice website, it is servicing it after that and there is no adviser or D2C platform to rely on.

“It might be a careful (about) what you wish for scenario.”

Robert Lewis, director at Heritage Financial Solutions, said: “As a financial adviser we see our job as managing the client and selecting suitable investments, I struggle to see how a fund manager can do this. Direct-to-consumer does not offer the client an independent view, in summary I find it a conflict of interest.

“We avoid fund managers where they have a D2C proposition, as advisers we should not be concerned that the fund house behind the scenes is marketing to our clients. We will continue to steer away from any fund house where this is the case.

“Choosing a fund is much more than its quartile ranking, so I fear fund houses could sell to clients on the back of awards and these rankings, which will not be in the interest of the consumer.”